The BBC's Quentin Somerville in Shanghai says that organs have been a lucrative and thriving business for the military and China's under-funded health system.

Death row prisoners

Under the new rules, doctors and clinics involved in the illegal organ trade will have their licenses revoked and will be subject to high fines, Xinhua news agency reported.

The rules ban the use of organs from donors under 18 and state that every transplant must be approved by an ethics committee.

The rules also stipulate that organ transplants "should respect the principle of voluntary and free donation", Xinhua said.

Critics say death row inmates may not be free to withhold consent

Last year, China officials denied a BBC report that organs taken from executed prisoners - not necessarily with their consent - were being sold to health tourists from overseas.

A BBC reporter ostensibly seeking a liver for a sick relative was told by doctors at a hospital in Tianjin that one could be available in three weeks and the donor could be an executed prisoner.

Ni Shouming of the Supreme People's Court said that organs from prisoners were only used with their consent or that of their families. "The donation procedure for ordinary people and those who sit on death row is the same," he said.

China faces a huge gap between supply and demand of organs, Xinhua said.

According to Health Ministry statistics, 1.5 million patients need transplants each year, but only 10,000 organs are available.